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TMK Grows Y/Y, Guides 2013

Torchmark Corp. (TMK) reported fourth-quarter 2012 net operating income of $1.33 per share, a couple of pennies ahead of the Zacks Consensus Estimate and up 10.0% year over year. The earnings increase was due to higher premium revenue as well as increased insurance underwriting income. Lower share count compared with the year-ago period owing to share repurchases also buoyed the bottom line.

FY12 net operating income was $5.18 per share up 15% year over year.

Total insurance premium increased 12% year over year to $739.1 million, led by higher premium from the Life and Health Insurance business.

Net investment income increased 1% year over year to $180.6 million. Excess investment income, a measure of the segment’s profitability, was down 13% to $55.8 million.

Underwriting income increased 13.0% year over year to $140.1 million, backed by higher margins at Life, Health and Medicare Part D segments.

Segment Update

At Life Insurance operations, premium revenue increased 5.0% year over year to $452.0 million, attributable to higher premiums written by distribution channels – American Income Agency (up 9%) and Direct Response (up 5%) – partly offset by a 2% decrease in premiums written by Liberty National Life Agency. Life underwriting margins increased 9% to $128.9 million. Net sales of life insurance increased 3%.

Health Insurance premium revenue increased 13% year over year to $203.0 million, while underwriting margin increased 10% year over year to $44.5 million.

Premium revenue from the Medicare part D business increased 73% year over year to $84.0 million, while underwriting margin increased 49% to $10.0 million. This huge growth in Part D business came on the back of the company’s new lower cost part D plan, which significantly increased the number of low-income auto-enrollees. The product also enabled the company to increase its individual sales.

Return on equity (:ROE) was 15.5 % for the quarter, compared with 14.7% in the year-ago quarter.

During the quarter, Torchmark repurchased 844,000 million shares at a total cost of $42.3 million.

2013 Earnings Guidance

Management expects 2013 net operating income per share to range from $5.45 to $5.75.

Looking Ahead

Torchmark has performed favorably for the past several quarters and we believe the trend should continue. The company is set to grow earnings considerably over the long term given its superior distribution agency and a significant presence in its niche market.

A strong balance sheet along with a sound capital management program are other positives.